The CFTC/FERC confrontation

On March 15, the Federal Court of Appeals for the District of Columbia nullified the Federal Energy Regulatory Commission's (FERC) order fining Brian Hunter $30 million dollars for manipulating the price of natural gas futures contracts on the New York Mercantile Exchange in 2006. It sided with the Commodity Futures Trading Commission (CFTC), which intervened in Hunter's appeal to the higher court, that the CFTC has "exclusive jurisdiction" under the Commodity Exchange Act to pursue such an action and that FERC therefore could not conduct its own case.

The CFTC has prudently avoided the human temptation to brag about this huge victory, but it deserves to be praised by the futures community because it re-affirms that a single regulator, and a single set of rules, continue to govern futures trading. Had FERC prevailed on the theory that its jurisdiction extends to futures whenever misconduct there has an indirect impact on the physical energy markets, any federal, state or local authority might use the same rationale to set standards and make demands upon futures traders and markets, vastly increasing compliance costs and potentially paralyzing the futures markets when — inevitably — those standards and demands conflict with CFTC policies.

I have a dog in this race. I led the effort in 1973-1974 to vest the evolving CFTC with exclusive jurisdiction. Congress agreed. As a result, the industry's activities are governed by a single rulebook. The cost savings, alone, are incalculable.

So, let us rejoice that the CFTC held its jurisdictional ground and prevailed. The CFTC may be too discrete to throw a party, but the futures industry has just dodged a bullet that could have been its undoing. A round of applause to the CFTC!